James Fenwick and Company Limited v Federal Commissioner of Taxation

This case concerned an appeal by James Fenwick & Company Limited against an assessment for Federal income tax for the financial year 1917-1918. The dispute arose from the inclusion of a sum of £976 10s. in the appellant's assessable income. This sum represented compensation paid to the appellant for the requisitioning of two steam tugs, the *Heroic* and the *Heroine*, by the Commonwealth Government on behalf of the British Admiralty under regulations made pursuant to the Defence Act. The tugs were requisitioned and handed over in Australia, but were subsequently taken to foreign waters for war service. The appellant contended that this sum was not taxable income derived from a source within Australia, while the respondent argued it was.

The central legal issue before the Full Court of the High Court of Australia was whether the compensation received by James Fenwick & Company Limited for the requisitioning of its vessels constituted income derived from a source within Australia for the purposes of the *Income Tax Assessment Act 1915-1918*. This required the Court to determine the "real source" of the income, considering that the requisitioning occurred in Australia, but the vessels were subsequently used in foreign waters.

The Court reasoned that the right to compensation arose immediately upon the requisitioning and taking over of the vessels in Australia. It held that the subsequent use or location of the vessels was immaterial to the appellant's entitlement to compensation. Applying the principle that the source of income is that which a practical man would regard as the real source, the Court concluded that the "real practical source" of the compensation was the act of requisitioning the tugs in Australia. Therefore, the income was derived from a source in Australia and was subject to income tax. The Court answered the question submitted in the affirmative.